Fixed-Price Building Contract

Fixed-Price Building Contract is a construction agreement where the builder agrees to deliver the completed works for a specified total price. Variations are limited to changes initiated by the developer or unforeseen site conditions. Most development finance lenders require a fixed-price contract because it provides cost certainty and protects the feasibility assumptions underpinning the loan.

Why It Matters

Cost blowouts can destroy a development feasibility. A fixed-price contract locks in the construction cost, which means the lender's LTC calculation and GRV margin remain valid. Without it, lenders face the risk that escalating construction costs will erode the profit margin and threaten loan repayment.

How It Works

The developer and builder agree on a total construction price before finance is approved.
The contract specifies the scope of works, materials, timeline, and the conditions under which variations are permitted.
The lender and QS review the contract to confirm it covers the full scope and aligns with the feasibility.
Staged drawdowns are made against progress claims under the fixed-price contract.

Common Use Cases

Required documentation for townhouse development finance
Multi-unit residential builds where cost certainty is critical
Projects where the developer is not an owner-builder
Lender credit assessment and QS cost verification

Related Switchboard Resources

For building contract guidance, visit Victorian Building Authority.

Can I use a cost-plus contract instead?

Most development lenders prefer or require fixed-price contracts. Cost-plus contracts leave construction costs open-ended, which makes the feasibility uncertain. Some lenders may accept cost-plus with a guaranteed maximum price (GMP).

What happens if there are variations?

Legitimate variations (developer-initiated changes, unforeseen site conditions) are handled under the contract's variation clause. The lender and QS review variations to ensure they do not compromise the project feasibility.

Does the building contract need to be with a licensed builder?

Yes — lenders require the builder to be appropriately licensed and insured. Most also require domestic building insurance (e.g. VMIA in Victoria) for residential projects.